Things are really a mess economically in the United States and it isn’t really an exaggeration to say it is all Washington’s fault. I mean through the easy money policies of the Federal Reserve and the legislative and monetary support of Congress and the previous administration many Americans who couldn’t otherwise afford to buy a house bought one. This coupled with reckless lending policies on the part of primary lenders due to explicit and implicit government loan guarantees set the economy up for a massive failure. Then, when their low teaser rates readjusted up and many could not afford their new higher payments the housing bubble burst. And what was Washington’s response? It was to provide trillions more in easy money and a policy of encouraging Americans to borrow and spend it to “stimulate” the economy.
Now that, that policy hasn’t worked we are facing a massive debt crisis, with real unemployment north of 16 percent and price inflation eating away at the standard of living in America.
If that is not bad enough, last week it was reported that bailout beneficiaries and mortgage guarantors Freddie Mac and Fannie Mae asked the federal government for more bailout funds. Freddie asked for $6 billion more bringing that GSE’s total bailout figure to $72.2 billion. Fannie asked for $7.8 billion more bringing its total Treasury draw to over $120 billion.
The main reason why Freddie and Fannie are still losing money and require more federal largess is because of the policies coming out of Washington. Freddie reported $4.8 billion in derivative losses alone due to declining interest rates. Fannie’s president and CEO, Michael Williams claims his firm’s woes are due to homeowners paying less interest on loans refinanced at historically low mortgage rates. So while Washington brought on the original crisis that forced Freddie and Fannie into U.S. conservatorship, its response to that crisis has only made the financial conditions of those entities worse.
At the end of the day, Henry Hazlitt’s words from his famous book, Economics in One Lesson ring prophetic.
“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
In both instances, Washington’s policies leading to the financial crisis of 2008 and its policies since have helped some groups ( i.e. bankers) and hurt others (Fannie and Freddie). Since no mortal man can determine with precision how a given economic policy of government or a central bank will affect every group in a society it is best for government and central bankers to abstain from imposing their will on the economy. Certainly we would be much better off now because our economy wouldn’t be in the mess that it is in.
Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina
Now that, that policy hasn’t worked we are facing a massive debt crisis, with real unemployment north of 16 percent and price inflation eating away at the standard of living in America.
If that is not bad enough, last week it was reported that bailout beneficiaries and mortgage guarantors Freddie Mac and Fannie Mae asked the federal government for more bailout funds. Freddie asked for $6 billion more bringing that GSE’s total bailout figure to $72.2 billion. Fannie asked for $7.8 billion more bringing its total Treasury draw to over $120 billion.
The main reason why Freddie and Fannie are still losing money and require more federal largess is because of the policies coming out of Washington. Freddie reported $4.8 billion in derivative losses alone due to declining interest rates. Fannie’s president and CEO, Michael Williams claims his firm’s woes are due to homeowners paying less interest on loans refinanced at historically low mortgage rates. So while Washington brought on the original crisis that forced Freddie and Fannie into U.S. conservatorship, its response to that crisis has only made the financial conditions of those entities worse.
At the end of the day, Henry Hazlitt’s words from his famous book, Economics in One Lesson ring prophetic.
“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
In both instances, Washington’s policies leading to the financial crisis of 2008 and its policies since have helped some groups ( i.e. bankers) and hurt others (Fannie and Freddie). Since no mortal man can determine with precision how a given economic policy of government or a central bank will affect every group in a society it is best for government and central bankers to abstain from imposing their will on the economy. Certainly we would be much better off now because our economy wouldn’t be in the mess that it is in.
Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina
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However, even Saint Von Mises recognized that central banks aren't the only ones creating money out of thin air. Any entity with the ability to issue credit can create money beyond actual value.
Here, and again, you try to pin it all on FanFred, even though they lost 2/3rds of subprime market share to investment banks. And, even though the FanFred subprimes weren't the toxic garbage the private players pushed. If FanFred was our only problem, we'd have no real problem.
Equally and as conveniently ignored is the G-S deregulation that led to Too Big To Fail banks, the SEC near abandonment of capital requirements in 2004 and the destructive over-expansion of securitization. Every one of those examples is an expression of laissez faire.
This is why libertarians have to lie about the financial crisis. Their ideas were even more responsible or at least as responsible as the Fed's cheap money policies. Because libertarians are forced to lie to cover their complicity, reasonable people are properly compelled to see it as a garbage ideology, which is what it is.
Physician, heal thyself.
Libertarians had nothing to do with the crisis and you know it. The only libertarian in government during all that time was Ron Paul and he's been warning about these difficulties for 35 years. Sorry to say that the worst is yet to come, but you don't understand that because you think the much discredited theory of Keynesianism is wonderful. Hold on tight, we are in for an ugly ride.
Yes, those who applied libertarian "neoliberal" ideas didn't call themselves libertarians. Yes, you do have the excuse that libertarianism was never fully implemented. Yes, you will always have that excuse because Americans don't want libertarianism, they prefer the American interpretation of liberty.
However, the destruction of regulation is exactly what libertarians promote, and I didn't see a single one crying that deregulation was performed without installing the whole of libertarianism. Got anything from Cato that wails about the dangers of applying deregulation without reverting America to full libertarianism?
Reagan cited libertarianism as the core of conservatism, Greenspan is an Ayn Rand acolyte and there has long been "fusionism" of movement conservatism and libertarianism.
If libertarian ideology had nothing to do with the meltdown, why do they feel the need to blame it on FanFred instead of the actual cause -- deregulation and laissez faire "free, self-policing market" dogma-as-policy?
The answer is obvious. The ideology not only doesn't work, it's politically and economically destructive. I understand why professional libertarians avoid reality, but I'm a bit perplexed why the amateurs feel the need to avoid the truth.
Keyensianism has worked, which is something libertarianism never has accomplished. It would work now, but less so after libertarian "free trade" globalization sent jobs and profits to China, etc. There are very few fans of libertarianism in America, but I'm betting the Chinese think it's the greatest thing since sliced noodles, given it has grown China's economy at the expense of America's.
If you had a real case to make, you'd be less gutsy in renouncing Keynes and lean towards showing where libertarian or Austrian School has been applied and worked. Maybe there's a reason heterodox economic theories remain heterodox economic theories.
Like all libertarian rhetoric, your claim is based on some ethereal normative supposition. The real world isn't on your side. Of course, libertarians aren't on the real world's side also, so it's reciprocal.
Again Paul, it has been Keynesianism and Fiat money that prolonged the Great Depression and is curently prolonging this crisis. In fact, expect things to get a lot worse before they get better. But, I suppose you will also blame libertarian policies for the next collapse.
Libertarian acts without the label somehow mean the ideas aren't libertarian. Greenie's a monetarist, so his libertarian ideas about free markets aren't libertarian. Sophistry, Kenn, pure sophistry. Blame FanFred, blame - even more insanely-the CRA. Blame statism, blame welfare state, blame Keynes. The Usual Suspects of the libertarian fantasy.
You reconfirm my analysis, Kenn. You disregard the obvious cause-effect of deregulation-meltdown in favor of Things Libertarians Don't Like. After that intellectual apostasy, you have the gall to call my analysis a joke.
While we can dismiss the "withering of the state" commonality between Marxists and libertarians as harmless fantasy, the similarity of Soviet and libertarian reality-altering propaganda is a flashing neon arrow pointing at Aberrant Ideology.
Fear of Ron Paul? Could you lower it to an even more adolescent level? While Paul has some attributes we all can like, let's see him be honest about what libertarianism is (and how his anti-abortion stance is a contrivance to appease conservatives) and then see how many Americans line up behind the concept.
Keynesianism extended the Depression, fiat money did also, the check is in the mail, I won't come in...well, you get my drift, I suppose. Things that can't be proven or will never happen in place of reality. Why? Because you decided you were a libertarian and so must accept the tenets of the religion, chant the canons and battle the apostates. Copernicus must be wrong because heliocentricity isn't an element of dogma. The Sun only seems to be in the center because Keynes fooled a lot of people. If it weren't for the CRA people would realize the Sun orbits the Earth.
Instead of adopting an ideology and then trying to see how you can cram reality into its tenets, try examining reality for what it is and allow your mind free reign to decide what is right or wrong and what works or doesn't. That way it's less likely you end up sounding like a Moonie or a Bolshevik or a Jehovah's Witness or a Creationist or a ... Libertarian.
In fact, the late 19th century saw falling prices, significant increases in real wages, and general economic growth and output perhaps not seen since. Based on your "an-unregulated-economy-causes-chaos" claims, the 19th century should have been a hellish economic nightmare. Funny how history says otherwise.
Now, let's look at the 20th and 21st centuries, with the Fed, with the moral hazards of a zillion banking and economic regulations -- supposedly making the system sounder -- and with official Keynesian policy.
We had the never-before-seen Great Depression, with its excruciatingly long period of high unemployment. (Btw, destroying crops and livestock in order to keep prices higher when poor people are starving? Yeah, brilliant idea Keynesian geniuses.) Specie money is now fully criminalized. We had the collapse of Bretton Woods and all the price inflation of the 1970s. We had a banking crises in the 1980s, and a phony tech-stock boom in the 1990s. And, of course, we had the real estate bubble with the current Great Recession. Now we have the mad scientist, central bankers preparing for a new, world-wide monetary debasement.
The boom-bust cycles are clearly more dramatic and prolonged. We have less, not more, stability; while continuous, economy-wide price inflation is so common that people think it's just a normal aspect of an economy. All this, despite more government oversight of the banking system and economy than ever before. Could it be that central planning simply does not work and, in fact, makes things worse? Of course.
To me, it seems obvious that a system that is closer to the libertarian ideal is much sounder. Not to mention it is more ethical, in that it is not premised on holding a gun to peaceful, non-aggressor neighbors and demanding a "benefit."
Yes, the 19th century was a model of economic stability, with the exceptions of the "Panics"-- recessions -- depressions of 1837--shortly after the 2nd Bank of the US was disbanded -- 1857, 1873, 1884, 1893, 1896 and, before the creation of the Fed, the Panics of 1901, 1907 and that little one of 1910-11.
"That aside," said Mrs Lincoln, "the play was a very good performance."
The last listed -- 1910-11 -- was a reaction to trust-busting. A seldom acknowledged fact is that those "robber barons" of industry then encouraged and embraced regulation in place of trust-busting.
Given those realities, I'd say the 19th had more and longer depressions/recessions than the 20th, but perhaps you use a different yardstick.
The real Keynesian stimulus--the one that worked-- was WW2, even though the economy was back to pre-depression functionality shortly before. That was due, to some degree, to government as employer and purchaser of last resort. While the efforts in the 30's didn't magically reverse the depression, it did keep a lot of people from starving. There was nothing about government spending that prevented private investment, and I have yet to see anyone explain why doing nothing would have worked better, given that reality.
The 80's was the beginning of the deregulation craze, and the S&L crash was a result of that. The latter 90's and oughts -- an orgasm of deregulation, followed shortly by this MegaRecession, soon to be recognized as Depression. Unlike the Great Depression, the ability to recover has been greatly diminished by "free trade," though better described as Job-Deleting Labor Arbitrage. Given that liberty and property are inseparable, our liberty has been shipped to China -- a "free trade" idea that libertarianism embraces as, curiously -- "liberty."
I'm no great fan of fractional banking or the Fed, but again, those who create credit create money and that private activity has to be regulated. Gold and silver are inadequate commodities given the limited supply, so if legitimate economic expansion is to occur, requiring more liquidity, then something has to give. If there is to be a standard, it needs to be based on something that expresses wealth expansion without affecting the value of the commodity per unit of expansion. Gold can't do that.
As far as libertarianism goes, per your last paragraph, that's a theory of liberty, but it's not the one America is based upon. Liberal social contract philosophy has us all giving up some liberties to preserve other liberties. You are free to promote the idea that no liberty should be given up, but if Libertopia were ever to materialize, you'd soon find out that the proven fact of power associated with wealth would purchase whatever liberty you thought you had gained, as wealth -- property-- and liberty are in essence the same thing, as noted above. Those who can manipulate the value of property can also manipulate liberty. That is the fatal flaw of libertarianism -- it ignores the true source of liberty and the proven power of wealth in place of a normative version of ersatz liberty. It is, as I have said before, a theory of liberty for the sake of theories of liberty, and has little relation to reality.
As I have also said before, libertarianism has never had a good idea that liberalism didn't have first. You guys be libertarians all ya want. I'll stay with the superior philosophy of liberalism, as it allows you to think.
That aside, a decent response, even if I disagree.
When you have individuals who believe that Ron Paul is a libertarian, you get laughable posts such as this one. The people I know who are true libertarians refer to our good old friend Ron as a fraud and a poser.
Really? When we actually look at facts and real data, we get this:
Why didn’t Canada have a banking crisis in 2008 (or in 1930, or 1907, or…)?
The answer is its history of financial regulation. US struggled to have a unified financial regulation and had multiple regulators and charters with powers divided between states and centre. Canada the federal had powers to regulate the financial sector and hence we have a much better and regulated financial system.
Canada rated world's soundest bank system: survey
It looks like Canada has more than its health care system to use as an economic model…